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An increasing number of fraudsters disguised as white knights are buying controlling stakes in companies in financial trouble to then strip them of their most valuable assets or attract as much credit as possible to then disappear with a tidy profit, leaving creditors and/or other shareholders with nothing. This is the warning from Nick Wood, a recovery and reorganisation partner at Grant Thornton.
"The scam, which is growing in popularity, is a fraudsters' dream, as it rarely gets adequately pursued", says Mr Wood. "Once a company is stripped bare of its assets there are no assets remaining to allow an insolvency practitioner to investigate and pursue the fraudsters. In essence, creditors are usually reluctant to fund insolvency practitioners in an investigation to avoid throwing good money after bad, leaving the Insolvency Service to deal with the matter.”
Former directors who may have sold in good faith a business to fraudsters may also be at risk. In some cases the original directors will have not been changed on the Companies House register, and therefore would legally remain responsible for that company's conduct, finding themselves left to carry the can for the activities of fraudsters.
The legal system also presents obstacles, as fraudsters know that insolvency practitioners and law enforcement agencies have to act within the law whereas fraudsters can lie and deceive, often with impunity. Even when the fraud has been identified and it is known which individual has received the assets, that individual then has to be pursued by someone through the Courts. If he has received professional advice on how to hide his assets these may be held in offshore trusts, put in the name of nominee companies and associates or simply transferred to jurisdictions where it is very difficult to recover these funds.
"Many of the traditional offshore havens are starting to assist in the investigation, tracing and recovery of assets which are the fruits of fraud, however, the fraudsters are often one step ahead and inevitably identify new opportunities and jurisdictions which are more accommodating to their activities", says Mr Wood.
"What companies can hope for in the meantime is to try and catch the fraudsters before they disappear.
One way to combat this is to constantly check a company's listing on the Companies House website to monitor any official change in the company's management structure and activities.
“A more efficient method may be to sign up to one or both of two new services from Companies House" says Mr Wood. “The Companies House ‘monitor’ service notifies companies by email of any documents filed in relation to that company. This service costs just 50p per annum per company. Companies can also sign up to the web filing service for which a security and authentication code are provided and are needed to make any changes to that companies' registered office and director listings.”
He added: "By keeping a close eye on any statutory changes which have to go through Companies House, company directors can avoid fraudsters changing the identity of that company and engaging in a range of fraudulent activities such as opening credit accounts with suppliers and ordering goods that are not paid for; opening new bank accounts which can be used to launder money or obtaining loans and potentially emptying existing company bank accounts.”
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